Trimmed supply, higher profit

Vector Consulting implements theory of constraints based solution frameworks, which involve paradigm shifts in management of supply chain in three industry clusters – Consumer Goods & Retail, Custom Manufacturing and Engineering & Construction companies. They also bring their own IT solutions to support the solution frameworks. Vector clients have shown industry leading results, outstripping the benchmarks of growth and availability. Vector’s client base has marquee names in the Indian corporate world, such as Tata Group, Godrej Group, Raymond Group, Cummins Group, Trent, Bajaj Electricals etc. Specifically to retail, Vector is working with Westside, Landmark, Liberty Shoes, Godrej Interio and Raymond Textiles.

A brief about the Theory of Constraints (TOC)

In a retail environment, the constraint of a store (and hence for the retail company) is number of people coming into the store or the footfalls. Money has been invested in the store location and advertisement to get a particular level of footfalls. So the best way to exploit the footfalls is to convert as much of the footfalls into sales as possible. The assumption is that to ensure higher availability, the stores and their warehouses have to maintain high inventory. But this will lead locking of capital. Once capital is locked, buying becomes restricted and expansion plans get hampered. Also excess stocks leads to markdowns which not only affects profits but also the sales of non discounted items. So a retail chain is caught between the conflicts of controlling inventory versus ensuring high availability with a good range. This prevents the exploitation of the constraint of the system – the footfalls.

 It is possible to nearly double the inventory turns of every retail company by applying the science of managing inventory or the Theory of Constraint to manage a retail supply chain. If inventory turns are doubled, not only a store becomes profitable but a retail company can release enough cash to funds its own growth rather than depend on outside help.

CASE STUDY

Westside is the leading lifestyle retail chain in the country operating more than 50 stores across the country.  The store is operated by Trent, a retail arm of Tata group of industries.

Implementation of TOC

The implementation focused at setting up processes wherein daily sales from stores is relayed to central warehouse for supply. Supply was exactly only as per consumption and bulk of inventory was at warehouse rather than the stores. The warehouse processes of picking were also aligned with stock level priorities at different stores. As a next step, the supplier lead time was decreased dramatically to be able to work on consumption mode instead of a forecast mode.

The real change is at the layer of management decision making and the culture rather than a software tool.  As TOC solutions assist in ensuring high reliability of delivery at lower working capital, these are deployed at the suppliers as well to ensure the big win for the suppliers (and big win for the suppliers are reduced working capital and additional sales).  

As the data to be managed is huge, Vector Consulting Group has also developed software tools to help the companies manage replenishment and stock levels using TOC processes, compatible to all the ERP systems.

The only way forward is adopting systems and processes that provide higher availability at lower inventory. The company which has the capability to expand rapidly with high availability not only has first entry (into an area) advantage but also customer lock in earlier on.

Kiran Kothekar, Founding Director, Vector Consulting Group

Working with Vector Consulting Group as our partner has helped us in achieving our target of attaining high availability while continuing to reduce inventory levels in our entire supply chain. The category of merchandise put on the replenishment system has seen very high availability at the central warehouse. As a result same store sales growths for these SKUs have been higher-than-average and overall inventory turns have increased.

Gaurav Mahajan, COO, Westside